Rent to Buy

[muppet]

What the the advantages and pitfalls for a tenant to enter in a "rent to buy" situation?

[sarahd]

Pitfalls:
Weekly costs are more, and if they reneg on the deal, will lose out on all this extra payment.

Advantages:
They get the option of 'buying' the home after a year or so (as agreed) when they may not have been able to buy a house. Banks might not have lent them the money, but the 'rent-to-own' landlord will help them build a deposit.

That's my summary of the whole thing, may be more to it than that of course.

[muppet]

Thanks Sarah, will pass on the information.

[Dean@Massiveaction]

You need to define rent to buy a bit more.
IF you mean lease option the "down side" is they will pay more than market rent.
Upside is they get their own home now, get all the equity growth, their lease payments are accepted by banks as proven savings and they can onsell without ever getting a mortgage. There are hundreds of other benefits but these are the biggies.

If it is a "rent to buy" then typically the downside is that the property is hugely inflated in price and the contracts are designed to make the renter fail so that they lose the property.

They are very different animals.

[SmallBrain]

Dean

What are the pros of "Lease Option" for the seller?

[muppet]

and pros for the buyer as against rent to buy.

[Dean@Massiveaction]

Seller =
Sells for registered valuation amount
Tenant takes care of R&M not covered by insurance
Cashflow positive pretax income

Buyer already detailed above Muppet

[muppet]

From a Trademe ad.

RENT TO BUY with NO DEPOSIT and weekly repayments of $231.00. (includes rent, rates, insurance and $30.00 principal reduction)

A STEAL at this price. ($124,000.00)

Dean said.

If it is a "rent to buy" then typically the downside is that the property is hugely inflated in price

Dean, why can't a lease to buy be hugely inflated?

[Winston001]

I hadn't realised 'rent to buy' happened outside the West Coast, Southland and a few other spots.

We'd collectively groan at work any time we heard those words. They always meant trouble at some stage in the process. Having said that, some contracts panned out with happy buyers and sellers.

In my experience rent to buy only happens when the seller can't find a outright buyer. So they agree with a tenant to treat all rent as payments of the purchase price if the buyer keeps their side of the contract. Usually that means paying the rates, repairs and maintenance.

Sellers I've dealt with haven't been interested in charging interest because they are so relieved to get a (possible) sale. Plus they usually get a price above the market.

Buyers with no money get the chance to buy a home which would normally be completely beyond them.

[Dean@Massiveaction]

In theory it can but most if not all lease option people in NZ have been trainde by GBI and myself so everybody has been taught to sell at RV as hydraulicking is unethical and potentially illegal.
RTB's really got going as a simpler alternative to wraps so the practitioners typically "Anticipated" the capital growth like a wrap would. They still make regular appearances in the paper and on Fair Go. South Auckland was full of them a few years back :-)

[whitt]

In my experience rent to buy only happens when the seller can't find a outright buyer. So they agree with a tenant to treat all rent as payments of the purchase price if the buyer keeps their side of the contract. Usually that means paying the rates, repairs and maintenance.

Yes correct it is in basic terms a trading strategy but over a longer term. Similar profit to seller/ investor but a different target market of buyers.

The market of buyers can be quite large as you potentially have buyers who would normally not be able to get standard bank finance too.

So in essence a delayed trade to a different market of buyers.
Both parties can win if strucured well.

[Puff]

I assist a lady in the top of the South, mainly Nelson that is doing it (Lease options) very well. Very ethical, the first place the Tenant Buyer (TB) is sent, is to their solicitor. She has very happy landlords and extemely excited TB's.
Yes the TB gets any capital growth from now until they exercise there right to buy, a WIN for them.
Yes the LL gets great rent, $10k better cashflow than they were getting, and has a contract on their place at market value now, even though they might not get that price right now if they had to sell, and of course none of those horrible RE Fees, WIN for them.

Regards

Mark
021 402990
[email protected]

[Winston001]

RTB's really got going as a simpler alternative to wraps so the practitioners typically "Anticipated" the capital growth like a wrap would. They still make regular appearances in the paper and on Fair Go. South Auckland was full of them a few years back :-)

Ah thanks, that is a completely different scenario from what I was thinking of. Incidentally we had a few of those awful financing deals occur in Invercargill too, it wasn't only south Auckland.

[muppet]

About 12 RTBs by one person listed on TradeMe for Tokoroa.
Most of them are in probably the oldest parts of town. Enough said.

[Dean@Massiveaction]

There are some shockers still trading out there. The new REAA makes their life a bit harder as they usually needed shady agents to help get the properties cheap